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Should You Avoid Treasuries and Focus on Stocks?<\/a><\/strong><\/p>\n\n\n\n Real yield on treasuries are not just low, they are\nnegative! So, should you be switching your focus toward stocks? Our\njust-released stock market outlook report will give you an in-depth look into\nthe current state of treasuries and stocks.<\/p>\n\n\n\n To help you get a deeper look into the current market\nenvironment and where could be the best place to invest, we are offering an\nexclusive look into our just-released October Stock Market Outlook Report. <\/strong><\/p>\n\n\n\n This report contains some of our key forecasts to consider\nsuch as:<\/p>\n\n\n\n If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0 ________________________________________________________________________<\/p>\n\n\n\n So, if real bond yields are low for intermediate and\nlong-term U.S. Treasuries, we know investors are not being compensated very\nmuch for investing in fixed income. Today, however, real bond yields on 10-year\nU.S. Treasuries are only low, they\u2019re negative.\n<\/em>In this environment, investors can reasonably expect to lose money over the\nlife of the bond, when accounting for inflation. As you can see in the chart\nbelow, the 10-year Treasure Inflation-Indexed Security is firmly in negative\nterritory, and I think it might stay there for the foreseeable future.<\/p>\n\n\n\n One of the big implications of low or negative real bond\nyields is the influence they have on other risk assets. If investors know that\ninvesting in 10-year U.S. Treasuries means flat or negative real returns, they\nare likely to look elsewhere for yield \u2013 corporate bonds, municipals, and\nstocks, in my view.<\/p>\n\n\n\n What\u2019s more, the Federal Reserve has made no secret of their\nmedium-term goals for interest rate policy. In a late August speech, Fed\nChairman Jerome Powell announced a \u201cflexible form of average inflation\ntargeting,\u201d which is a convoluted way of saying the Fed is now increasingly\nwilling to allow inflation to drift above 2% for \u201csome time.\u201d In other words,\ninvestors can expect the Fed to keep interest rates low \u2013 and perhaps continue\ntheir accommodative asset purchases \u2013 even if inflation starts to tick higher.\nReal bond yields may remain low or negative for an extended period, in my view.\n<\/p>\n\n\n\n What does this mean for stocks and corporate bonds? On the\ncorporate bond side, the spread between corporate bond yields and U.S.\nTreasuries is running below its 10-year average. This dynamic is allowing investment-grade\ncorporations to issue an unprecedented amount of bonds to cushion balance\nsheets and make new investments. But it is also allowing riskier corporations\nto access the corporate bond market at below-market rates, which investors\nshould be cautious about. <\/p>\n\n\n\n On the equity side, low\/negative real bond yields push down\nthe discount rate, making equities attractive relative to bonds. When pricing\nstocks, a quick method is to consider a corporation\u2019s future earnings potential\nless the risk-free interest rate \u2013 this is the discount rate. A lower discount\nrate means that future corporate earnings are more valuable, which by extension\ntends to make stocks more attractive. If the options are to lose money on\nTreasuries or to own a portion of a company\u2019s future earnings (by owning shares\nof stock), investors today are being nudged to choose the latter, in my view. As\nyou can see below, the 10-year U.S. Treasury rate has sunk over the last year \u2013\nboosting the case for equities, in my view.<\/p>\n\n\n\n Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\n The reality of lower-for-longer interest rates is generally\nbad news for savers but generally good news for equity investors and borrowers.\nI have written before that interest rates anchored to the zero bound tend to\npush investors further out onto the risk curve, particularly those in search of\nyield. What assets are out on the risk curve ready to receive this rotating\ncapital? Stocks and corporate bonds, in my view. <\/p>\n\n\n\n To learn more about stocks, bonds and another key data points that can help you navigate this current market, I am offering all readers our\u00a0<\/a>Just-Released October 2020 Stock Market Outlook Report.\u00a0<\/a><\/strong> If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!5<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":" With inflation factored in, treasury yields are negative\u2014so investors are seeking yield elsewhere <\/p>\n","protected":false},"author":3,"featured_media":8874,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-8878","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8878","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8878"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8878\/revisions"}],"predecessor-version":[{"id":10540,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8878\/revisions\/10540"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8878"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8878"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8878"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
IT’S FREE. Download the Just-Released October 2020 Stock Market Outlook<\/a>2<\/a><\/sup><\/strong><\/p>\n\n\n\n![\"\"](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/Image-1-of-2-1024x395.png\")
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This Special Report is packed with newly revised predictions that can help you base your next investment move on hard data. For example, you’ll discover Zacks\u2019 view on:<\/p>\n\n\n\n